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RMI 211 EXAM 1 PRACTICE QUESTIONS AND ANSWERS
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RMI 211 EXAM 1 PRACTICE QUESTIONS AND ANSWERS What is Risk? - Answer️️ -Uncertainty regarding loss Objective Risk - Answer️️ -the relative variation of actual loss from expected loss Subjective Risk - Answer️️ -uncertainty based on a person's mental condition or state of mind (diff...

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  • August 30, 2024
  • 18
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • rmi 211 exam 1 practice questions and answers

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©SOPHIABENNETT@2024-2025 Sunday, August 25, 2024 2:42 PM

RMI 211 EXAM 1 PRACTICE QUESTIONS AND ANSWERS


What is Risk? - Answer✔️✔️-Uncertainty regarding loss

Objective Risk - Answer✔️✔️-the relative variation of actual loss from
expected loss

Subjective Risk - Answer✔️✔️-uncertainty based on a person's mental
condition or state of mind (difficult to measure)

objective probability - Answer✔️✔️-Likelihood that a specific result will
occur, based on hard facts and numbers

a priori - Answer✔️✔️-by logical deduction such as in games of chance

empirically - Answer✔️✔️-by induction, through analysis of data

subjective probability - Answer✔️✔️-- personal estimate of the chance of loss

- it need not coincide with objective probability and is influenced by a
variety of factors including age, sex, intelligence, education, and
personality.

Chance of Loss Distinguished from Risk - Answer✔️✔️-although chance of
loss may be the same for two groups, the relative variation of actual loss
from expected loss may be quite different

Peril - Answer✔️✔️-The cause of a loss (Fire, Hurricane, Tornado)

Objective Risk - Answer✔️✔️--Can be measured by using the standard
deviation or coefficient of variation


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, ©SOPHIABENNETT@2024-2025 Sunday, August 25, 2024 2:42 PM

-Declines as the number of exposure units increase

Hazard - Answer✔️✔️-A condition that increases the frequency or severity
of a loss.

Physical Hazard - Answer✔️✔️-A physical condition that increases the
chance of loss.

Examples: Icy Streets, poorly designed intersections, and dimly lit
stairways.

Moral Hazard - Answer✔️✔️-Dishonesty or characteristics of an individual
that increases the chance of loss.

Example: You have not insured your house from any future damages. It
implies that a loss will be completely borne by you at the time of a
mishappening like fire or burglary. Hence you will show extra care and
attentiveness.

Attitudinal (Morale) Hazard - Answer✔️✔️-Carelessness or indifference to a
loss, which increases the frequency or severity of a loss.

Examples: Suppose a person pays insurance for his new phone. Morale
Hazard arises when the model of his phone becomes outdated, and he no
longer cares about it.

Legal Hazard - Answer✔️✔️-Characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses.




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, ©SOPHIABENNETT@2024-2025 Sunday, August 25, 2024 2:42 PM

Example: A court notice about a property, dispute of an insured person or
some other similar legal matter which could result in loss for the insured
and for which insurance company may have to pay.

Pure Risk - Answer✔️✔️-A situation in which there are only the possibilities
of loss or no loss.

Speculative Risk - Answer✔️✔️-A situation in which either profit or loss is
possible.

Diversifiable Risk - Answer✔️✔️-A risk that affects only individuals or small
groups and not the entire economy.

It can be reduced or eliminated by diversification.

nondiversifiable risk - Answer✔️✔️-A risk that affects the entire economy or
large numbers of persons or groups within the economy.

It cannot be eliminated or reduced by diversification.

Enterprise Risk - Answer✔️✔️-Encompasses all major risks faced by a
business firm, which include: pure risk, speculative risk, strategic risk,
operational risk, and financial risk.

Personal Risk - Answer✔️✔️-Anything that exposes you to the risk of losing
something of value. Usually, the personal risk is associated with your
financial investments/insurance and personal health.




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